Monetary Policy Transmission in the Eastern Caribbean Currency Union

Author/Editor:

Alla Myrvoda ; Julien Reynaud

Publication Date:

March 29, 2018

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper empirically investigates international and domestic monetary policy transmission mechanisms in the Eastern Caribbean Currency Union (ECCU). We assess interest rate pass-through of both the U.S. policy rate and the ECCU minimum saving deposit rate (MSR) into domestic interest rates through the interest rate channel. While economic theory suggests that the international pass-through should be high in small open economies with fixed exchange rates and open capital accounts, our findings, based on regression analysis, point to a low long-run pass-through coefficient of the U.S. interest rate. The domestic transmission channel, however, is found to operate through changes in the MSR. The results hold for different interest rates (deposit and lending) and are supported by survey-based findings.

Series:

Working Paper No. 18/70

Subject:

English

Publication Date:

March 29, 2018

ISBN/ISSN:

9781484348291/1018-5941

Stock No:

WPIEA2018070

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

30

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